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Budget 2017 - Public Services and Social investment

Public Services and Social investment

The Government’s Social Investment methodology is cemented as the cross-agency innovation engine within the $7bn of social spending initiatives in Budget 2017.

Adrian Wimmers - KPMG NZ - Partner

Partner - Deal Advisory, Head of Infrastructure

KPMG in New Zealand


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Public Services and Social investment

The large package seeks to scratch many itches, and has an increasing focus on preventative action.

The key Budget measures

The key Public Services related initiatives announced in Budget 2017 are:

  • $3.9m for the health sector, including $1.5b for the care workers wage settlement
  • $1.1b for schools and early childhood centres, including a $61m increase in school operational grants
  • $1.2b for police, courts and justice, including increasing police staff by 10%
  • $803m for other social services, notably including $424m for Oranga Tamariki

The key Social Investment related initiatives announced in Budget 2017 include:

  • $100m for a mental health social investment fund
  • $35m for children with behaviour difficulties
  • $33m on burglary prevention
  • $28m for Family Start, an Oranga Tamariki programme

There are many other initiatives named. In all cases the Government is innovating in ways that use data to target integrated services at individuals and families in need while building frameworks to measure the true impact that results. 

While the large step up on public services spending is a big deal on its own, the rising prominence of Social Investment is one of the key stories of Budget 2017.

The back story of Social Investment

Social Investment was initially adopted to support the government’s welfare reforms of the early 2010s. It represents the push to capture, integrate and use data to deliver effective services to the right people at the right time. Over the years, it has steadily expanded across other parts of government, including the justice sector, the new Ministry for Vulnerable Children (Oranga Tamariki), and the establishment of the Social Investment Unit (SIU).  

At KPMG, we welcome this deepening emphasis on evidence and data-driven decision making and innovative thinking on how to best commission effective services that improve outcomes for New Zealanders. We acknowledge however that sharing of data can create some thorny ethical issues that will need to be stepped through carefully. We see that Social Investment will progress to an ecosystem of mutually supporting elements. Essentially, these attempt to answer the following five questions:

  1. Where to invest?
  2. How to purchase more effective services?
  3. Who can deliver the best results?
  4. How can funding be aligned with results?
  5. Were the services effective? 

KPMG view on the next steps for Social Investment

While the focus in the Budget may be on the dollars and cents allocated to new initiatives, the real promise of Social Investment lies in the ‘roll up your sleeves’ hard work required by officials and Ministers to adjust policy and purchasing settings of existing Public Services spend to improve targeting, incentives and accountability in ways that solve complex social problems. Distributing new funding is the “easy part”. This is why we see Social Investment as an innovation engine on the edge of the social system, which is already having system impacts.

Our thoughts on the next steps for each component of the Social Investment ecosystem are below:

Investment Approach:  The government should continue to develop the common building blocks across new service areas to better understand where to invest its existing spending. In particular, we welcome the ongoing development of integrated datasets and data sharing arrangements between agencies and the work that the SIU is undertaking to support this. Ultimately the results of this work need to support frontline staff to make decisions on the interventions that/which will be most beneficial to particular individuals. 

Commissioning: Smarter commissioning aims to improve the effectiveness and targeting of services purchased by the government. We would welcome a further shift in the public discussion away from dollars spent (inputs) towards outcomes achieved. Over time, this will move more of government away from simple one year input contracting to smarter contracting where providers have more control over how and what services are required to deliver outcomes. Such a move is a key part of the Productivity Commission’s 2015 report recommendations to achieve more effective social services. We have seen significant development in robust frameworks and methods for the procurement of infrastructure projects in the last six years, such as a clear view of the opportunity pipeline, detailed risk allocations, performance measurement frameworks and contract durations that encourage whole-of-life thinking. We would welcome similar developments in the commissioning of appropriate social services.

Contestability: The opening up of many traditionally purchased social services to contestability has the potential to reduce cost and drive up innovation by harnessing broader capabilities and provider skill sets in new ways. In many cases these contracts are already held by non-government providers but it is not clear whether incumbents would be the best party through which to purchase service outcomes. In general, we think there should be a level playing field between government and non-government providers; the focus should be on who can achieve the best achieve outcomes and value for money. There are of course many challenges here and not every service will be suitable. 

Impact investment: Smarter commissioning and contestability, particularly at scale, will require new forms of ‘risk capital’ to be invested. ‘Pay for results’ contracting can require providers, whether government or non-government, to be able to cover their costs for up to several years until desired outcomes are demonstrated. Given the risks involved and the early stage of the market, the sources of capital available to such providers will be either from their own balance sheets and/or investors of external capital seeking both financial and social returns, e.g. from the philanthropic community or private sector. Impact investment is on the rise globally and there appears to be an appetite amongst a group of aspiring New Zealand impact investors to plug this current gap in New Zealand’s capital markets. Capital that is directly aligned with the social outcomes sought has the potential to unlock performance and innovation in a way that current short term funding agreements simply cannot.

Evaluation and accountability: The challenge of effective evaluation is evergreen. Measurement of social outcomes can be difficult, as no direct measures may be available, or there may be considerable lag between provision of support and outcomes. Attribution can also be an issue, as vulnerable populations may be receiving support from multiple government agencies and NGOs at the same time. To top it all off, there are often no clear governance arrangements to facilitate changes to services and support or hold agencies accountable. We anticipate this area to receive considerable interest in the coming years, particularly with the establishment of Oranga Tamariki, which will have a whole-of-sector leadership role for vulnerable children and young people. Impact investors will also demand clear outcome measures as a pre-condition of their investment.

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